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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

For any country to be economically sound, she must experience a growing economic sector. It is of interest to Nigeria and other third world countries to attain a steady economic growth rate, as this would enhance National development. Economic growth and development involves an increase overtime of per capital real gross National product (G.N.P) and the welfare of the population.

For economic growth to be achieved, a certain issues that act as constraints ought to be tacked. These issues include technological development, human resources development, low productivity, capital formation, price stability etc. (Iniodu 1996). And as Nwankwo (1991) observes, capital formation which is the function of an efficient financial system is very vital” capital formation involves the mobilization and channeling or resources form the surplus spending units (ssu) to the deficit spending unit (Osu). The Nigeria capital market is a critical part of the financial system which performs this allocative role.

The market is the long term end for financial market. It is made up of the market and institutions, which facilitate the issuance and secondary trading of long term financial instruments. Unlike the money market which function basically to provide short-term funds, the capital market provides funds to industries and government to meet their long-term requirements.

The capital market has it’s mission statement that is “promoting the Nigeria capital market to respond to the socio-economic development need of the nation”. The objective of the capital market is to mobilize long-term funds for investment. The capital market is performing various functions. The capital market provides an additional channel for engaging and mobilizing domestic savings for productive investment and represents alternative to bank deposit, real estate investment and the financing of consumption loans. It also provides deposit with better protection against inflation and currency and depreciation. Another major function of Nigeria capital market is to improve the efficiency management changes as compared with the administrative or potential mechanism of public sector corporations. The capital market facilitates the transfer of enterprises from the public sector to the private sector and encourages privatization by increasing the marketability of new issues. The capital market employs some instruments used to raise funds, these instruments are equities-ordinary shares  and preference shares. Debt government bonds (federal state and local government). Industrial loans / debenture stocks and bonds.

The players in the capital market are the funds providers who are individuals, unit trusts, pension funds, insurance companies, government intermediaries are the stock broking firms, issuing housing, registers, audit firms and regulators e.g. securities and exchange Commission. The Nigeria stock exchange central bank of Nigeria and the federal ministry of finance.

However, there is a growing concern about the efficiency or otherwise of the Nigeria capital market and to the role f the insurance sector. Ajayi (1984) sees it as “efficient in the sense that, the capital market has increased the nation’s output and equitable distribution of the output.

But, Williams (1988) see that capital market as “inefficient in pooling funds for investment” he observe further that by participation of only a few elites, it has helped to widen the gap between the rich and poor.

This project attempts to determine the influence of this market on the growth of the insurance companies in Nigeria. In particularly, its sees to clarify the role of the insurance companies as key players in the capital market and how role has strengthened insurance business in Nigeria.

1.2   STATEMENT OF THE PROBLEM

To understand the subject matter we will look at the capital market on the growth of insurance in Nigeria. We want to, also believe that the insurance company is a member of the capital market which function among others involves in the channeling of long-term funds from the surplus to the deficit for investment, but after the finding of William (1988) was sees the capital market as being inefficient, implying that insurance company is inefficient in pooling funds fro investment. He also added that only a few elites get such funds thereby creating a gap between the rich and the poor.

        At this point I will like to identify those factors that have render the insurance sector the efficient and that must be done to correct those capital of both life and general insurance to #20 million and #50 million, where the general business includes oil and gas insurance, among another activities. Reinsurance has a minimum paid-up capital of #150 million (Akpan 1999). One of the major sources of capital insurance companies is the capital market that has being fully descried in the introduction.

Examining the performance of the five companies quoted on the stock exchange, prestige assurance, Nigeria insurance and Allco insurance company’s profit before taxation and also an increase in the profit after taxation. Dividends were also recommended a dividend payout of NGN, 55,440, 625, while Allco recommended NGN 70 million to share holders. This was made possible by the allotment of right issues in the year 2003 per all three insurance companies which was as a result of the company’s recapitalization plan.

        The same cannot be said for crusade and unic insurance, which recorded a slight decrease in 2002 and 2001 despite the impact of the capital market. This can be as a result of the general impact of variable knowing fully well that the main function of an insurance company is indemnity which is taking an individual to where he or she was before he or she suffers loss and finally is want to know why only few insurance companies are quoted.

1.3   OBJECTIVE OF THE STUDY

The objective of this research are as following:

1)     Examine the capital market in the development of the insurance sector..

ii)     Appraise the impact of the Nigeria capital market on the growth of the insurance business in Nigeria.

iii)    Identity the problem confronting the insurance companies as beneficiaries of the services provide by the Nigeria capital market.

iv)    Make recommendations on the efficient management of the Nigeria capital market.

1.4   SIGNIFICANCE OF THE STUDY

At this time, the Nigeria government is intensifying efforts to boost the country’s economy, the need to research on the fact that led to economic growth in Nigeria cannot be understated. This study will aid our understanding of economic development via the insurance sub-sectors participation in the capital market.

Thus, this research work is considered to be important to:

i)      The government for policy formulation.

ii)     The business community for the purpose of investment and capital formulation.

iii)    The result of work will serve as a reference materials for  researches.

iv)    This study will enhance the knowledge of the researcher more about the capital market and the insurance sector.

1.5   SCOPE AND LIMITATION OF THE STUDY

        In the course of carrying out this research work the researcher was faced with some limitation. Such as:

1)     Time constraint: The duration allowed for this study is limited and insufficient for wide traveling together materials.

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